Hedge Fund Manager Found In Contempt In Battle With Ex-Partner

Jan 17 2012 | 12:03pm ET

Scott Stagg may yet win enough rounds in his legal battle with former hedge fund partner Gary Katcher. But if he doesn't watch his p's and q's, he may earn that technical legal knockout from behind bars.

A state court judge in Connecticut has found Stagg in contempt of court for spending money subject to a temporary injunction on things like football season tickets and his country club dues. The Stagg Capital chief has to do 150 hours of community service and mind his ways, or Judge John Blawie might throw him in jail.

At issue is a pair of 2008 temporary injunctions stemming from a lawsuit by Katcher seeking $7 million from Stagg. According to Katcher, Stagg has spent that money funding a "lavish lifestyle" despite the injunctions, and Blawie agreed, finding that the injunctions were "never even given lip service, much less obeyed by" Stagg.

Katcher sued Stagg after the latter failed to pay the second half of the $12 million he agreed to for their 3V Capital Management, now Stagg Capital. Stagg has sued Katcher for even more, after the hedge fund's chief operating officer pleaded guilty to diverting as much as $8.9 million from Stagg Capital to Katcher's Libertas Partners.

According to Stagg, that "wrongfully transferred" money allowed Libertas "to meet its capital shortfall, which allowed Katcher to sell Libertas to Knight Capital Group for $150 million."

Despite his disagreement with the 2008 injunctions, Stagg said he was "fully complying with the court order" even as he appeals it. In addition to the community service, Blawie ordered Stagg to cough up more information about his finances, to put some assets in escrow and to cooperate with attempts to garnish his wages.


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